States or Markets? The Problem with Binary Thinking

While teaching International Political Economy this quarter (after a rather long hiatus) and watching John Stossel's interview of Arriana Huffington last night on ABC's 20/20, it struck me how binary thinking really does make otherwise intelligent people “stupid.” Stossel, who I've written about before, is similar to many pundits: he sees the world in stark black- and-white, binary or dichotomous terms. In particular, to Stossel and others, if the government is not the solution (and to Stossel, it's clearly not the solution) it must be the problem. There's no middle ground, no room for a more nuanced understanding of the role that governments (or states) must play in the modern world. It is not surprising, then, that Stossel extols the virtues of the market: without exaggeration, he believes that only the market (or, perhaps more accurately, the logic of the market) can solve the most pressing problems of modern society. If the educational system is “broken,” it must be the government's fault and only market-based competition can fix it. If the welfare system doesn't work, again, it's the government's fault and the only solution is to subject “welfare recipients” to the efficient winds of market forces.

What Stossel and others of his ilk fail to see, however, is that modern states and markets exist in a mutually dependent, even co-dependent relationship. State power, at the most general level, allows markets to function (consider what would happen if there was no political authority capable of enforcing private property rights and contracts). Even more, states are often necessary to create and maintain “free” markets: consider what might happen if companies had no restraint on their exercise of their power. Many, if they could, would do everything possible to eliminate-permanently-their rivals (even Adam Smith believed this) to snuff out competition so they could reap monopolistic profits. In an era of mega-corporations, which can figuratively reach around the world, only states can stand in their way. In a world populated by other states, moreover, no private actor would be able to create and sustain a framework of international or global free trade.

Once we recognize that states are part-and-parcel of the capitalist process, it becomes harder to sustain the argument that they are, as Stossel implies, antithetical to markets and competition. And, if one cannot sustain that argument, then the related argument that state action and power is the problem begins to crumble.

It is also important to understand that states, at least in principle, operate according to a different logic than firms, and that this difference is something we all want. Capitalist firms, by definition, are motivated by profit. The profit motive is important and it leads to tremendous economic results, of this there is no doubt. A (democratic) state, however, is ostensibly motivated by a much broader set of goals: a state must ensure the survival and security of the country (both internal and external), it must be concerned with issues of equity, justice, and, indeed, social welfare (broadly defined), and it must be concerned with creating and maintaining public goods (a livable environment, clean water, transportation systems, etc.). (An aside: Marxists are less sanguine about the motivations of states; they believe that states represent the interests of capital to begin with. This is worthwhile position to explore, as I do in my classes, but for the sake of argument, let us assume that states can also act in the interest of the population at large.)

We know that capitalism, even or especially when it is operating smoothly, produces unemployment and poverty and all sorts of socially destructive results-at least in the short-run. Market actors have no incentive to protect workers and others since doing so undermines their profits. This is perhaps the best reason we don't want “national defense” privatized: it's really an oxymoron, since “privatization” implies exclusive (i.e., private) interests, while “national” implies collective interests. Really, does Stossel believe that we should turn over national defense to Blackwater?

Herein lies another useful point: The American state (or government) is very good, very effective at providing national defense. We hear time and time again, that the U.S. has the best military in the world. Yet, it is a monopoly (i.e. no actor, private or otherwise, can compete against the U.S. government in providing military defense). Yet, according to Stossel, state-based monopolies never work. Now, I can already hear Stossel and others saying, “Yes, but the U.S. government relies on private enterprise to provide defense, and there is competition among private firms to manufacturer weapons.” Fair enough. But this makes my point: as in many, many areas, governments and private enterprise (the logic of the state and the logic of the market) go hand-in-hand. They are not binary opposites, but mutually reinforcing.

This is not, I should emphasize, meant to be a paean to the state (I am, in fact, skeptical of both the state and market). Rather, I simply want to make the point that binary, either-or thinking leads to simplistic, even dangerous conclusions.

Cheney and the Limits of Realism

Realism tells us that individual- and state-level factors--e.g., the interests of major economic actors, the perceptions and cognitive processes of individual political leaders--are largely irrelevant to understanding signifcant foreign policy decisions. This short interview with Dick Cheney, however, gives us an indication of the limits of realism. Cheney's analysis of the reasons against removing Saddam Hussein from power after the first Guf War are a textbook example of realist logic: the US had no compelling national interest in removing a dangerous dictator largely because the strategic costs of doing so outweighed the benefits. That is, without support from Arab allies, without a reliable method of maintaining stability in the region and political coherence within Iraq (which would lead to bigger problems), and so on, it simply made no "strategic" sense for the US to go further. Of course, in 2003 (and even before), Cheney's tune changed completely. Yet, and this is the important point, the strategic environment of decision-making remained largely the same. In 2003, there was still no support from Arab or Islamic allies, there was still no viable political alternative to the Baathist regime, and there was even less support from the international community at large, including the UN and major powers (France, Russia and China). As we know now, too, there was no imminent danger from the Hussein regime itself--that is, there were no weapons of mass destruction. (Indeed, even if Hussein had WMDs, from a strict realist perspective, this would not have mattered since Hussein could not have used the weapons against the US without fear of total obliteration--a point that Condoleezza Rice made quite clearly when she, too, was still espousing realist principles.)

Despite all this, the United States launched a "pre-emptive" invasion to remove Hussein from power. It is clear, to repeat, that the international strategic environment did not necessitate this action, as realism claims. Instead, the key motivating factors almost certainly had to be domestic in nature. Whether these were economic/class interests or products of individual needs, interests or perception is, of course, important. But, the larger theoretical point is simply that realism cannot adequately explain this extraordinary foreign policy decision. To put it bluntly, this is a major flaw in the realist framework, and one that students of international relations cannot afford to ignore.